Dollar's Weakness Adds to Inflation Threat

Calafia Beach Pundit submits:

(Click charts to enlarge)

At the request of "Adam Smith" and as a public service, here is a chart of the inflation-adjusted, trade-weighted value of the dollar against a broad basket of currencies, with data through the end of February, 2011. (The nominal version of this chart can be seen below.) Today the dollar is essentially at an all-time low against other currencies on both a real and nominal basis, and that marks something of a "misery milestone" if you will. The dollar's extreme weakness reflects a combination of factors:

• the Fed's concerted effort to maximize the dollar liquidity available to the world (in the hopes that this will stimulate the economy and avoid the risk of deflation); and
• the world's weak demand for the dollar, which in turn is likely fueled by concerns related to potentially inflationary monetary policy, massive federal budget deficits, a lack of U.S. leadership, and

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